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The Securities and Exchange Commission (SEC) has informed the public that it has charged a former registered representative with defrauding long-standing brokerage customers in an $8 million investment scam.

According to the SEC’s complaint, Steven Pagartanis, who was affiliated with a registered broker-dealer, told some investors – including retirees who had been Pagartanis’s customers for many years – that he would invest their funds in either a publicly-traded or private land development company. He promised that the funds would be safe and also promised guaranteed monthly interest payments on the investments. At Pagartanis’s direction, his investors wrote checks payable to a similarly-named entity that was secretly controlled by Pagartanis. In all, the customers invested approximately $8 million, which Pagartanis used to pay personal expenses and make the guaranteed “interest” payments to his customers. To conceal the scam, which unraveled earlier this year when Pagartanis stopped making the so-called interest payments to customers, Pagartanis created fictitious account statements reflecting ownership interests in the land development companies.

The Suffolk County District Attorney’s Office today filed criminal charges against Pagartanis.

As part of the alleged scam, Pagartanis preyed on his customers’ trust, duping them to write checks payable to his own entity,” said Marc P. Berger, Director of the SEC’s New York Regional Office. “Regardless of how long investors have worked with their brokers, they should always confirm that recommended investments are approved for sale by their brokerage firm before transferring funds.

The SEC’s Office of Investor Education and Advocacy (OIEA) and the Division of Enforcement’s Retail Strategy Task Force (RSTF) today issued an Investor Alert educating investors about warning signs that a broker may be offering investments outside of the broker’s firm. According to the alert, even if you are investing through a broker you have known for years, you should be cautious if your broker asks you to make out a check or to wire money to an individual or to a different firm. OIEA and RSTF’s ongoing collaboration, including through Investor Alerts and other deterrence and detection initiatives, aims to help prevent frauds targeting retail investors.

The SEC’s complaint, filed in federal district court in Brooklyn, charges Pagartanis with violating the antifraud provisions of the federal securities laws. The SEC is seeking a judgment ordering Pagartanis to disgorge his allegedly ill-gotten gains plus prejudgment interest, and to pay financial penalties.

The SEC’s investigation, which is continuing, is being conducted by Gerald Gross, Haimavathi Marlier, Sheldon Mui and Neil Hendelman of the New York Regional Office. The litigation will be led by Ms. Marlier and Mr. Mui. The case is being supervised by Lara Shalov Mehraban. The SEC appreciates the assistance of the Suffolk County District Attorney’s Office and FINRA.

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